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Last Updated: Friday, 5 March, 2004, 17:21 GMT
IMF cautiously optimistic on UK
Shoppers in London
Consumer confidence is key to bolster the economy
The UK economy has "weathered the global slowdown well", and growth could hit 3.1% this year, the International Monetary Fund (IMF) has forecast.

The prediction, in the Fund's latest annual review, is further confirmation that the UK economy remains robust.

But the IMF also warned that joining the euro involved "difficult issues", and that the state budget had fallen into the red.

The IMF urged Britain to keep a careful eye on public finances.

Although it insisted there was little immediate cause for concern, it warned that a collapse in house prices could rapidly sour the picture.

Ups and downs

The IMF report essentially reiterates a well-worn theme among observers of the UK economy - praise for its fundamental buoyancy tempered by modest fiscal concerns.

Over the past few years, UK economic growth has outpaced continental Europe, and has even remained relatively immune to the brief stumble in the US.

This solid performance has in part been achieved by a strong surge in consumer borrowing, notably to finance house purchases, as well as government spending.

As a result, government finances look less secure than when Labour came to power in 1997, and some have warned that taxes may need to increase sharply to help finance spending commitments.

And in particular, any serious reversal in the still-booming housing market could leave many households out of pocket, with a knock-on effect on consumer spending and economic growth.

Strategic concerns

The IMF comments on Britain's euro entry were particularly cryptic.

The Fund, which is keen to steer clear of the political debate on the single currency, noted only that "it would be difficult to take a decision on [economic and monetary union] based on technical considerations alone."

Britain has shifted over to the eurozone's method of calculating inflation, which the IMF said was a crucial technical step forward.

But it also warned that the country must consider the long-term implications of joining before any more substantive steps could be achieved.

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